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SUMMARY 

OF THE 

BUDGET OF THE UNITED KINGDOM 

FOR THE 

FISCAL YEAR ENDING MARCH 31, 1953 



PREPARED BY 

THE STAFF OF THE JOINT COMMITTEE ON 
INTERNAL REVENUE TAXATION 




UNITED STATES 
GOVERNMENT PRINTING OFFICE 
98407 WASHINGTON : 1952 



SUMMARY OF THE BUDGET OF THE UNITED 

KINGDOM 



I I. Summary Statement 

{ The budget proposals for the year ending March 31, 1953, were 
presented by the Chancellor of the Exchequer, Mr. R. A. Butler, on 
j March 11, 1952. A resume of his budget proposals appears below. 



A. TAX CHANGES 

1 . A 30 percent excess profits tax quite similar to that imposed in 
the United States is made effective as of January 1, 1952. At the 
sam^e time the profits tax for corporations was decreased slightly so 
that, taking the income tax and profits tax together, a corporation will 
pay in taxes 50 percent of its undistributed income, as com.pared to 
52.75 percent under existing law^, and 17.5 percent of its distributed 
income (plus a 47.5 percent withholding tax for the stockholder) as. 
compared to 18.75 percent (plus a 47% percent withholding tax) under 
existing law. 

2. The time limit for the carry forward of business losses is 
eliminated. 

3. Several changes are m.ade in the application of the income tax 
to individuals. They are as follows: 

(a) The "allowances" for single persons, or exem.ptions, are in- 
creased from £110 to £120, the allowance for a married couple from 
£190 to £210, and the allowance for a child from £70 to £85. 

(6) The exclusion of earned incom.e is increased from one-fifth (20 
percent) to two-ninths (22.2 percent) of such incom_e, and the maxi- 
mum of earned income relief, which is reached at an income level of 
about £2,000, is increased from. £400 to £450. Also, all income, 
whether earned or not, of less than £250 a year will be eligible for the 
earned income credit and a "notch" rate will be provided for incom.e 
slightly in excess of £250. 

(c) The rate schedule in the lower tax brackets is revised and 
lowered somewhat. The old and new "reduced" rates and "standard" 
rates (exclusive of the surtax which is not changed) are as follows: 



Taxable income 


Old rates 


New rates 


£0 to £50 


Percent 
15 

27/2 
27M 
47H 
47>^ 


Percent 
15 


£50 to £100 


15 


£100 to £250 - .____--_____-_ 


27^2 


£250 to £400 _ - - - - - -._ _ 


37>^ 


Over £400 - 


47'/^ 









2 SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 

4. Under the purchase tax (wholesalers' '^ale tax) the existing j 
"utility" classification is discontinued for wearing apparel and similar' 
items. As "utility" items they were exempt from tax. Under the I 
new arrangement specific monetary exemptions are to be provided for 
wearing apparel, etc., and any excess of price over the exemption is to i 
be subject to the purchase tax. Certain other goods, such as rubber 
boots, and industrial protective clothing, which previously have been j 
taxable under the purchase tax, are also to be granted exemptions 
under the new plan with the result that they are to be exempt or 
subject to reduced rates. The rate on fur-trimmed garments is to be 
reduced from 100 percent to 33)^ percent. It is not expected that 
these changes in the purchase tax will raise any additional revenue. 

5. The tax on gasoline and oil is raised by 7Kd. per imperial gallon^ 
making the new tax 2s. 6d. per gallon, and raising the price of gasoline 
from 3s. 7Kd. per gallon, to 4s. 3d. per gallon. Thus, the total tax on 
gasoline will be about 59 percent of the retail price. It is estimated 
that this change will increase revenues by £66 million. 

6. Motor-vehicle license duties on cars first registered since 1946 
are raised from a flat annual fee of £10 to £12 ICs. The new duty of 
£12 ICs. is also substituted for the higher assessments, based on horse- 
power ratings, previously applied to older cars. As a result of these 
changes there will be a revenue reduction of slightlv over £l million 
in a full year of operation. 

7. A new uniform schedule of tax is provided under the entertain- 
ment duty for sports and games, which is in between the two sched- 
ules previously applicable. Formerly high tax rates were provided 
for racing and low rates of tax for other sports and games. The new 
schedule lowers the tax on racing considerably and increases some- 
what the tax on other forms of sport. 

8. Postal charges for mail, other than those for the ordinary letter, 
are raised so as to increase revenue in a full year of operation by slightly 
over £4 million. The tax on exchange subscribers' rentals of tele- 
phones is increased from 15 percent to 50 percent. Increases are 
also provided in other charges made for telephone service. The tax 
on special telephone and telegraph service is increased from 25 percent 
to 50 percent. The effect of the changes in the rates on telephone 
and telegraph charges will be to increase revenue by about £10 million 
in a full 3^ear. 

B. GENERAL ECONOMIC CHANGES 

1. The bank rediscount rate is raised from 2}^ to 4 percent for com- 
mercial paper (last November it was raised from 2 to 2% percent). 
In addition the rate at which the bank is prepared to lend to the money 
market for loans against Treasury bills was raised from 2 to 3/2 percent. 
This increase in interest rates is expected to result in a net reduction 
in domestic investment of at least £100 million, after taking into ac- 
count a probable increase in investment for defense and building. 

2. Imports are to be reduced by £100 million a year on the basis of 
prices existing at the beginning of the year. This action, together with 
previous reductions, means that imports will be at an annual level 
of about £3,150 million, or about 10 percent below the value of imports 
in 1951 and 15 percent below the annual level in the second half of 
1951. 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 3 

C. EXPENDITURE CHANGES 

1. Government expenditures for food subsidies are to be held at a 
level of £250 million a year instead of the £410 million previously 
planned. These expenditures represent payments made to food sup- 
pliers to hold down the prices which must be paid by consumers 
for food. The reduction of these food subsidies will mean that food 
prices will rise to cover costs which were previously covered by these 
Government subsidies. According to the budget message this increase 
in price to consumers is expected to average about Is. 6d. per week 
per person. This is an increase of around 21 to 26 cents. The effect 
of this change is expected to be more than offset by the income tax 
reductions, previously discussed, and by the famil}^ allowance and 
pension increases, discussed below. 

2. Family allowances are increased from 5s. to 8s. a week. These 
are payments made to families for each child after the first child. 
This is expected to cost £37 million in a full year of operation. 

3. Old-age assistance benefits are to be increased to provide the 
equivalent of uniform benefits for single persons of 32s. 6d. a week, 
and for married couples of 54s. a week. However, no decision has as 
yet been reached as to whether there is to be a differentiation in pension 
benefits according to whether an individual is over or under age 70. 
Contributions of employers and emplo3^ees are also to be increased 
by lYod. per week for men, and S^d. per week for women. It is 
anticipated that this change in pension benefits in the next few years 
will raise costs by £10 million a year. 

4. War pensions are raised by 10s. a week, raising the standard 
basic rate from 45s. to 55s. a week for 100 percent disability. Increased 
benefits are also to be granted to war widows. These changes will cost 
approximately £10 million a year. 

5. Industrial injury benefits also are to be raised by 10s. a week; 
that is, the basic rate will be raised from 45s. to 55s. a week. This is 
expected to cost £3 million a year. 

6. The pension payments made to former public service employees 
are to be increased by 5s. to 7}^s. a week up to a total cost of £20 
a 3^ear per person. 

- D. EFFECT ON THE BUDGET 

1. Expenditures in the fiscal year 1953 are expected to amount to 
£4,150 million taking into account the reductions in food subsidies 
and increases in pensions. This is £76 million above the probable 
expenditures for the fiscal year 1952. The £76 million is a net figure 
composed of both increases and decreases. The increases include 
£33 million for debt charges and £265 million for defense expenditures, 
while there is a decrease of £222 million in civilian expenditures. 

2. Revenues, taking into account the proposed changes, are es- 
timated at £4,661 million, an increase of £221 milhon over the prob- 
able revenue for the fiscal year 1952. Although reductions are made 
in the income and profit tax rates, this increase in revenue is due 
primarily to the larger revenue which it is estimated will be derived 
from these taxes, and is attributable primarily to a substantial rise 
in corporate profits. 

3. The above expenditure and receipt figures indicate a budgetary 
surplus for the fiscal year 1953 of £511 miUion, taking into account 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 



the reduced food subsidy payments and the increase in pensions. Thisi 
can be compared with a probable budgetary surplus of £366 millionl 
for the fiscal year 1952. The United Kingdom budget does not, how-l 
ever, take into account certain expenditures and receipts made by the! 
Government outside of the conventional budget. To a large extent 
these are loans or repayments of loans. After these are taken into 
account, the surplus for the fiscal year 1953 is reduced to £5 million 
and the surplus for the fiscal year 1952 becomes a deficit of £158 
million. 

II. Balance of Payments Problem 

Despite the estimated surplus of £366 million in the conv^entional 
budget for the fiscal year 1952, the Chancellor of the Exchequer, 
Mr. Butler, indicated that the United Kingdom's economic position 
was deteriorating. This arises from the balance of payments problem 
with which the country is faced. In general terms the balance of 
paA^ments represents the balance between what the United Kingdom 
sells abroad and what is purchased from the rest of the world. Previ- 
ously it had been estimated that due to new defense requirements 
being added to the continuing problem of recovering from wartime 
losses, the United Kingdom would have a deficit in its balance of 
payments of about £100 million in 1951. However, for a number of 
reasons indicated in the budget message, the deficit in the balance of 
payments was considerably larger. The white paper on the United 
Kingdom balance of payments places the deficit in current trans- 
actions for 1951 at £521 million. The United Kingdom's balance of 
paj^ments for the last several 3"ears are shown in table 1. 

Table 1. — United Kingdom balance of payments 
[111 millions of pounds sterling] 





1946 


1947 


1948 


1949 


1950 


Fii-st 
half 


Second 
half 


Total 
1951 


Exports - - 


905 
-1,081 


1,135 
-1,560 


1,588 
-1,791 


1,820 
-1,974 


2,225 
-2, 372 


1,310 
-1. 646 


1,398 
-1.851 


2,708 


Imports 


-3, 497 


Trade balance .. .-- -..- 


-176 


-425 


-203 


-154 


-147 


-336 


-453 


-789 






Travel -^ 


-29 
29 

71 

-363 

109 

15 


-55 
33 

80 

-230 

98 

-46 


-33 

76 

76 
-92 
193 

-43 


-30 

81 

78 

-149 

204 

-25 


-22 
113 

128 

-141 

312 

1 


-8 
73 

73 
-73 
179 

-1 


-26 
33 

17 

-76 

80 

-3 


-34 


Shipping 


106 


Investment income (interest, profits, 
dividends) 


90 
-149 




259 


Immigi ants' "funds, private gifts, 
legacies, etc _ . .. 


-4 






Balance of invisibles 


-168 


-120 


177 


159 


391 


243 


25 


268 






Surplus (+) or deficit (— ) in 
current transactions 


-344 


-545 


-26 


+5 


+244 


-93 


-428 


-521 







Source: The data for 1946 and 1947 were derived from United Kingdom Balance of Payments, 1946 to 1950, 
T^To. 2 (Cmd. 8201), H. M. Stationery Office, and the data for the remaining years were derived from United 
Kingdom Balance of Payments, 1948 to 1951, No. 2 (Cmd. 8505), H. M. Stationery Office. 

Mr. Butler gives several reasons accounting for this deterioration in 
the United Kingdom's balance of payments position. First, Marshall 
aid was suspended and the first repayments of the United States and 
Canadian loans had to be made. Second, "invisible" income (such as 
income from foreign travel, shipping, investments abroad, etc.) fell 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 5 

below expectations. Third, the internal economy was such as to 
hamper the expansion of exports and to stimulate imports. Produc- 
tion did not increase as much as was expected, and the budget failed 
to produce any general decline in personal consumption. The volume 
of civil domestic investments rose substantially instead of declining, 
as had been planned. As a result, goods available for export were 
fewer than had previously been anticipated. At the same time other 
industries met with a slack or falling demand abroad. A fourth factor 
was the rise in the price of imports. Compared with 1950, the increase 
in volume in 1951 was about £300 million, but because of higher prices 
the total increase in the import bill was slightly over £1,100 mihion. 
The United Kingdom deficit in the balance' of payments in itself 
meant a severe drain on dollar and gold reserves. However, the effect 
of this drain was magnified because the position of the other sterling 
area countries became worse. The sterling area countries include the 
British colonies and the British Commonwealth of Nations with the 
exception of Canada. These countries were faced with difficulties 
because the prices of their main exports, such as rubber, tin, and wool, 
which had been high in the winter of 1950-51, were fafiing, while their 
imports, as a result of an earlier rise in the incomes, were increasing. 
As a result they, as well as Great Britain, added to the strain on the 
dollar and gold reserves of the sterling area. Table 2 shows the 
sterling area gold and dollar reserves held in London for the years 
1949 through 1951 and for the first 3 months of 1952. It will be 
noted that the reserves increased during 1950 and the first half of 
1951, but have declined quite rapidly since that time until they 
reached the quite low level of $1,700 million by the end of March 1952. 



Table 2. — Sterling area gold and dollar reserves held in London 
[In millions of dollars] 





Sterling 

area 

dollar 

balance 


Additional dollars 


Change in 
reserves 


Reserve 




Credits, 
etc.i 


Marshall 
aid 


at end of 
period 


1949 year . 

1950 year 


— 1, 531 

+ 805 


168 
45 


1, 196 
762 


-167 
+ 1,612 


1,688 
3,300 


1951: 

First quarter 

Second quarter 

Third quarter 

Fourth quarter 


+ 360 

+ 54 
-638 
-940 




2 98 
2 55 
,2 40 

26 


+ 458 
+ 109 
-598 
-934 


3,758 
3,867 
3, 269 
2,335 


1951 year 


-1, 164 

-299 

-266 

-71 





2 199 

1 - 


-965 

r -299 

-266 

[ -70 


2,335 


1952: 

Jan. 31 

Feb. 29 

Mar. 31 


2,036 
1, 770 
1, 700 



1 Mainly United States and Canadian credits. 

2 Allotted before December 1950. 

Source: British Information Service, British Kecord, Mar. 14, 1952, and Apr. 11, 1952. 



Q SUMMARY OF THE BUDGET OF THE UNITED KINGDOM j 

To meet this balance of pa3^ments problem Mr. Butler said: 

Ovir part in the new effort is to eliminate the United Kingdom deficit with the } 
non-sterling world in the second half of 1952, after taking into account such defense I 
aid as we may receive from the United States.^ ! 

To accomplish this aim he indicated that resources must be diverted 
from use at home sufficient to improve the ov^er-all balance during 
1952 to the extent of £600 million. He expects improvement in 
invisible earnings and in the balance of trade to account for £200 to 
£250 million of this total. In addition to this, the plans of the 
Government are to reduce imports by more than £300 million and to 
increase exports b_y approximately £50 million. The reduction in 
imports of £300 million and the increase in exports of £50 million, 
however, is expected to reduce goods available for domestic use only 
by approximately £200 million because of the size of stocks presently 
on hand. However, increased defense expenditures will divert 
another £200 million from civilian to military uses. 

Because of the overriding importance of the balance of payments 
problem, Mr. Butler indicates that achievement of the aims outlined 
above was the dominating factor in deciding what budgetary recom- 
mendations to make. In this situation the government is seeking to 
curtail civilian purchases of imported goods, especially, and of domes- 
tic goods where the producers affected can turn to exports. Both of 
these changes would tend to make dollars available for the arms 
build-up without a balance of paj^ments deficit. In general this was 
accomplished by increasing curbs on domestic investment expenditure 
through the new excess profits tax and the higher interest rate. The 
only devices to curtail civilian consumption were the increase in the 
gasoline tax and the decrease in food subsidies, the effect of which on 
consumption in general were more than offset by decreases in the 
income taxes. It was also intended, as is explained below, that the 
income tax changes on low incomes will help the balance of payments 
situation by increasing production through encouraging an increase 
in the amount of overtime worked. 

III. Budget Receipts and Expenditures 

The actual and estimated budgetary receipts and expenditures as 
shown in the Financial Statement are summarized in table 5 for the 
fiscal years 1951, 1952, and 1953. 

1 Parliamentary Debates (Hansard). House of Commons Official Report, Mar. H, 1952, vol. 497. No. 52. 
p. 1277. 



n SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 

Table S.^Sutnmary of receipts and expenditures 



Actual 



1951 



1952 1 



Estimated 1953 



Under 

existing 

rates 



Under 

budget 

proposals 



In millions of pounds 



Receipts 

Expenditures 
Surplus 



E-eceipts 

Expenditures 
Surplus 



/ 

Receipts 

Expenditures 
Surplus 




In millions of dollars ($2.80 = £1) 



11, 138 
9, 120 
2,019 



12, 


432 


11, 


407 


1, 


025 



13, 


378 


11, 


872 


1, 


506 



13, 051 

11, 620 

1, 431 



In millions of dollars ($3.50 = £1) 



13, 923 

11, 399 

2, 524 




16, 314 

14, 525 

1,789 



1 Based on probable receipts and expenditures as contained in the Financial Statement of Mar. 11, 
1952, for year ending Mar. 31, 1952. 

2 Takes into account net saving in expenditure resulting from reduction of food subsidies of £160 million 
and increased payments of pensions, insurance benefits, and family allowances of £80 million. 

The data are shown both m milhons of pounds and in milhons of 
dollars. In the latter case pounds have been converted mto dollars 
at two different rates: $2.80 per pound, the official exchange rate, and 
$3.50 per pound. The latter exchange rate is included because, in 
periods of sudden changes, the value of a nation's currency in foreign 
exchange may vary considerably, without having much effect on the 
purchasing power of the currency at home. Because of the balance- 
of -payments difficulties, discussed in the previous section, the foreign 
exchange value of the pound has decreased considerably more, during 
and since World War II, than has the domestic purchasing power of 
the pound. However, the use of the foreign exchange rate as the 
conversion factor between pounds and dollars implies that the decrease 
in these two values of the pound were the same. To arrive at what 
might be called the dollar domestic purchasing power of the British 
pound, a United Nations publication ^ converts from pounds to dol- 
lars at the 1938 exchange rate and adjusts for changes in the cost of 
living between 1938 and 1949 in the United States and in Great 
Britain. This adjustment was carried forward by the staff for cost- 
of-living changes in 1950 and 1951 to arrive at the $3.50 rate. This 
conversion rate is believed to better reflect the value of goods and 

2 Statistical Office of the United Nations, National and Per Capita Incomes, Seventy Countries— 1949, 
Statistical Papers Series E, No. 1, New Yort, October 1950. 



98407—52- 



8 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 



services which could be bought with a pound b}^ a British family than;' 
is true of the foreign exchange rate. 

An examination of the above table indicates that, while both receipts! 
and expenditures under the budget proposals are above those for the 
fiscal year 1952, in both cases they are below the receipts and expendi- 
tures which would have existed in the absence of the budget proposals. 
This reduction in receipts can primarily be accounted for by the budg- 
etary concessions in the income tax in the lower rate brackets, while 
the reduction in expenditures can be accounted for primarily by the 
budgetary decreases in food subsidies and the Post Office deficit. 
Moreover, these reductions in income and expenditures are interre- 
lated, since the income tax reductions, to some extent, were intended 
as a compensation for the reductions in the food subsidies. 

Table 4 compares the estimated budgetary expenditures for 1953 
in certain major categories with the actual expenditures for 1951 and 
1952. 



Tari-e 4. — Comparisofi of actual expenditures in the fiscal years 1951 and 
1952 and the budget proposals for 1953 

[In millions of pounds] 





Exchequer issues 


Budget 

estimate 

1953 




1951 


1952 1 


Defense 

Debt service 

All other 


777 

497 

1,983 


1, 112 

542 

2,420 


1,377 

575 
2 2, 198 






Total ordinary expenditures _ 


3,257 


4,074 


2 4, 150 







1 Probable expenditures as contained in the Financial Statement of Mar. 11, 1952, for year ending Mar. 
31, 1952. 

2 Takes into account net saving in expenditure resulting from reduction of food subsidies, of £160 million 
and increased payments of pensions, insurance benefits, and family allowances of £80 million. 

The above table indicates that total ordinar}' expenditures under 
the budget proposals for 1953 will be about £76 million in excess of 
those for 1952 after taking into account the decrease in food subsidies 
and increases in pensions. However, there are increases in defense 
expenditures of £265 million and in debt service expenditures of £33 
million. These are offset b}^ other decreases of £222 million. The 
budget speech of the Chancellor of the Exchequer, together with the 
Financial Statement make it clear that £80 million of this reduction 
can be accounted for by reductions of £160 in food subsidies offset by 
increased payments for pensions, insurance benefits and family allow- 
ances of £80 million. Also a comparison of estimated expenditures 
for the fiscal year 1953 with those made a year ago for 1952 indicate 
that most of the remaining decrease probably can be accounted for by 
decreases in national health service costs, in contributions to the 
national insurance and pension schemes and by "other services." 

Up to this point discussion has been with respect to what is called 
ordinary revenues and expenditures, or "above the line" revenues 
and expenditures. There are also, however, certain receipts and 
payments which are outside of the budget, called "below the line" 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 



9 



items. The excess of "below the Hne" expenditures over receipts was 
£524 milKon in the fiscal year 1952 and is estimated at £506 million 
for 1953. Thus, on this basis there was a deficit in 1952 of £158 mil- 
lion while a surplus is forecast for 1953 of £5 million. Expenditures 
"below the line" in large part represent loans which the Treasury is 
authorized to make without annual legislative approval which it is 
anticipated can be recovered in the future. Receipts "below the 
line" in large part represent the recovery of such loans previously made. 
Table 5 below shows the actual or estimated receipts by major 
sources for the fiscal years 1951, 1952, and 1953: 



Table 5. — Receipts by major sources for the fiscal 
[In millions of pounds] 


years 1951- 


53 




Actual 


Estimated 


1951 


19521 


1953 2 


Income taxes - - _ _ 


1,525 
268 
185 
905 

54 

61 

725 


1, 818 
307 
180 

1,000 

62 

65 

755 


1, 927 


Profits taxes _ _ 


457 


Death duties , _. _ 


175 


Customs 

Excise and sales taxes: 

Stamp taxes 

Motor vehicle duties 


1,044 

58 
64 


Excises 


772 


Total excises and sales taxes 


841 
6 


882 
3 


894 


Miscellaneous internal revenue duties 


2 


Total tax receipts 

Miscellaneous receipts 


3,730 

248 


4, 190 
250 


4,498 
163 


Total receipts 


3,978 


4,440 


4, 661 







1 Probable receipts as contained in the Financial Statement of Mar. 11, 1952, for the year ending Mar. 31, 
1952. 

2 After proposed tax changes. 

Note.— Figures are rounded and will not necessarily add to totals. 

Total receipts under the budget for 1953 are expected to be £4,661 
million or £221 million above the probable figures for 1952. Profits 
tax receipts are expected to increase by approximately £150 million, 
income tax receipts by £109 million, and customs, excises and sales 
tax receipts by £56 million. The large increase in profits and income 
tax receipts is primarilj^ attributable to a substantial rise in corporate 
profits. The principal decrease is in miscellaneous receipts, which are 
down by about £87 million. The decrease in miscellaneous receipts 
is attributable primaril}^ to the fact that practically no revenue is 
anticipated from surplus stores and considerably less than formerly 
from the surplus receipts of trading services. 

In the calendar year 1951 the British Central Govermnent's expendi- 
tures, including grants and loans to the localities, were about 33 percent 
of the gross national product. The combined expenditures of the 
central and local govermnents were about 36 percent of gross national 
product. In the United States in the calendar year 1951, expenditures 



10 SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 

of the Federal Government, including grants-in-aid to State and local 
governments, were about IS percent, and the combined expenditures 
of all levels of government about 24 percent of the gross national 
product. 

In comparing the 36 percent and 24 percent it should be recognized 
that certain difficulties are encountered in making international com- 
parisons of government expenditures. Medical expenditures, for 
example, are included for the United Kingdom, while, although similar 
expenditures are made by individuals in the United States, they do not 
appear here as a part of government expenditures. In addition, there 
are other items such as food subsidies and family allowances which 
are included as United Kingdom, but not United States, expenditures. 
The British food subsidies are in effect negative sales taxes since a 
sales tax is first imposed on food and then payments are made to food 
suppliers as subsidies. On the other hand, the family allowances in 
the United Kingdom are similar in efi^ect to the personal exemptions 
under the income tax in the United States. The exemptions for 
children in the United Kingdom are lower than thej^ are in the United 
States, but this is compensated for to some extent in the United 
Kingdom by the fact that these allowances are paid to families having 
more than one child. Although these food subsidies and family al- 
lowances have a similar effect as features of the United States law, 
in the United Kingdom they appear as government expenditures, 
while in the United States the effect is achieved by collecting lower 
taxes initially. The exclusion of these medical expenditures, food 
subsidies and family allowances alone would reduce total United King- 
dom expenditures in 1951 from 36 to 30 percent of the gross national 
product. 

One basis for comparison is the net purchase of goods and services 
loy the United States and the United Kingdom Governments. This 
omits in both cases those expenditures where a government is acting 
only as an agent in transferring funds from one group of persons to 
another and thus excludes expenditures which do not involve the use 
of resources by government. On this basis expenditures by the 
United States governments, including State and local governments, 
represented about 19 percent of the gross national product in 1951. 
United Kingdom central and local government purchases of goods and 
services in 1951 represented approximately 20 percent of the gross 
national product. Thus, the main difference in the budgets of the 
two countries lies in the size of the transfer payments, 5 percent of 
the gross national product in the United States and 16 percent in 
the United Kingdom. These larger payments in the case of the 
United Kingdom do not directly reduce the volume of goods and 
services available through the private segment of the economy, but 
they do redistribute the goods and services, and the taxes levied to 
accomplish this redistribution can affect incentives in the same way 
as other taxes. 

IV. Budget Tax Changes 

The revenue effects of the budget tax changes are summarized in 
table 6. 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 



11 



Table 6. — Estimated revenue effect of -proposed tax changes 
[In millions of pounds] 



Fiscal year 
1952-53 



Full year 
effect 



Income tax 

Profits tax and excess profits levy 

Structural changes in income and profits tax 

Customs, excises, and duties: 

(a) Stamp duty 

(b) Hydrocarbon oils, petrol substitutes, and power 

methylated spirits 

(c) Entertainments duty 

(d) Purchase tax 1 

(e) Betting duty 

(/) Motor vehicle duty ^' 

Total, customs, excises, and duties 

Post Office: 

(a) Postal service 

(6) Telephone service 

(r) Telegraph service 

Total, Post Office 

Grand total 



-180. 3 

+ 1.0 

+ .5 

-2. 5 

+ 66.0 
-. 5 

0) 

-. 9 



- 229. 

f 100. 

-. 5 

-3. 5 

+ 66.0 
-. 3 

(') 
{') 
~ 1. 3' 



62.2 



61. 0) 



+ 3. 6 

+ 5. 8 
+ .2 



+ 4. 2 
+ 9.4 

+ .2 



+ 9. 6 



+ 13. 8 



- 107. 



54. 8 



1 Negligible. 



A. INDIVIDUAL INCOME TAXES 



Individuals in the United Kingdom pay two types of income taxes. 
One is known simply as the "income tax." In computing this tax 
certain "reliefs and allowances" are allowed as deductions. These 
"reliefs and allowances" include such things as personal exemptions, 
depeadenc}^ allowances, and an earned income allowance. This tax is 
divided into two parts, the "standard rate" and the "reduced rates." 
The reduced rates prior to the budget included two rate brackets and 
covered onh^ the first £250 of taxable income; all income in excess of 
this amount was taxable at the fiat standard rate. The second 
income tax payable by individuals is the "surtax" which applies pro- 
gressive rates to the income of the individual in excess of £2,000 (the 
reliefs and allowances are not deductible under this tax). 

The current budget makes a number of concessions which piincipally 
have the effect of lowering the tax of individuals in the middle and 
lower income brackets. These concessions take the form of larger 
personal exemptions and dependency allowances, a larger earned 
income allowance and lowei' tax rates in the bottom brackets of the 
"income tax." It is estimated that these changes will exempt at 
least 2 million people from tax altogether. No changes are made, 
however, in the surtax applying to the incomes in excess of £2,000. 

In his budget message, Mr. Butler says: 

The income tax in itS present form suffers from three major defects: The starting 
points of liability are too Ioav, the rates of tax are too high, and the graduation is 
too steep. I propose to make a start this year in tackling these defects. * * *" 
I propose, therefore, to make radical changes in the incidence of the income tax 
designed to lighten the burden of the tax, particularly on extra earnings, and thus 



12 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 



to encourage people when they put in longer overtime or earn more by harder 
work. We must insure that the tax works with, and not against, economic forces, 
and that it encourages rather than damps down people's natural aspirations.^ 

In the past the British tax system has been criticized on the grounds 
that it interfered with the incentives to produce, and particularly 
the willingness to engage in overtime work.* Mr. Butler indicates 
sjonpathy with this view by reducing the income tax burdens and by 
indicating that he would like to make larger reductions. Apparently 
he believed that from the standpoint of the problem with which the 
United Kingdom is faced, it is most important to increase incentives 
in the lower tax brackets since, as indicated in tables shown sub- 
sequently in this section, he concentrated the tax reductions in the 
bottom brackets of the income tax. He was able to accomplish this 
reduction without unbalancing the budget by decreasing somewhat 
thehigh level of services the United Kingdom government provides, 
which primarily go to persons in the same low income brackets 
in which the tax reduction was concentrated. 

The exemption or allowance for single persons is iry3reased from 
£110 to £120; that for married couples, from £190 to £210; and that 
for children, from £70 to £85. In the case of single persons this is 
an increase of approximately 9 percent, for married couples an in- 
crease of nearly 11 percent, and for children an increase of slightly 
over 21 percent. In terms of dollars these exemptions or allowances 
are the equivalent of either of the two following schedules, depend- 
ing upon the rate of conversion used: 



Old allow- 
ances 



New allow- 
ances 



In dollars (£ = $2. 



Single person. _ 
Married couple 
Child 



Single person__ 
Married couple 
Child 




In dollars (£ = $3.50)i 




420 
735 
297. 5G 



1 This represents an attempt to measure the value of the pound in terms of dollar domestic purchasing 
power. It is explained further on p. 7. 

Personal exemptions in the United States for single persons are 
$600, for married couples $1,200, and for dependents $600. Thus, the 
allowances granted in the United Kingdom in the case of single 
persons are from 56 percent to 70 percent of the exemptions granted 
a single person in the United States, depending upon the conversion 
rate used. For married couples the allowances in Great Britain are 
from 49 percent to 61 percent of United States exemptions, aud for 

3 Parliamentary Debates, op cit., p. 1304. 

* See, for example, London Economist, April 6, 1946, "Taxes and Incentive." 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 13 

jchildren the United Kingdom allowances are from 40 percent to 50 
percent of United States exemptions. However, in comparing the 
allowances for children in the United Kingdom with the dependency 
credits in the United States it would appear that the United Kingdom 
j family allowances should be taken into consideration. These allow- 
ances are increased by the budget from 5s. to 8s. a week for children 
after the first. If this allowance is treated as an exemption, it raises 
the exemption for children, after the first, from $238 to $296 if the 
conversion is made at the foreign exchange rate, or from $297 to 
$370 if the conversion is made at the $3.50 rate. On this basis the 
British exemption is from about 49 percent to 62 percent of the 
American exemption for dependents after the first. 

The earned income allowance is increased from one-fifth to two- 
ninths of the income, or from 20 percent to 22.2 percent, with the 
maximum allowance being raised from £400 to £450. The £450 
maximum allowance is reached at an income level of £2,027. In 
terms of dollars the new maximum allowance amounts to $1,260 or 
$1,575, depending upon the conversion rate and applies at an income 
level of $5,676 or $7,095. In addition, the Chancel or states that in 
the future all incomes below £250 a year ($700 or $875) will receive 
the earned income relief irrespective of whether or not the income is 
earned. A "notch" rate is to be provided for incomes slightly in 
excess of £250. Prior to the Revenue Act of 1943, the United States 
also had an earned income credit. It was an earned income credit 
of 10 percent of the net income up to $3,000 whether earned or not, 
and up to $14,000 if earned. This credit was applied against net 
income for normal tax (then 6 percent) purposes. 

In addition to providing an earned income credit of one-fifth of 
such income, the United Kingdom also provided an additional credit 
of one-fifth of the income where either the taxpayer or his spouse 
was 65 years of age or over, and during the year did not receive income 
in excess of £500 ($1,400 or $1,750). In such a case the one-fifth 
exclusion applied to any income to which the earned income credit 
did not apply. This exclusion also is increased from one-fifth to 
two-ninths by the budget. This has somewhat the same efi^ect as 
the additional $600 exemptions allowed in United States to taxpayers 
and spouses who are age 65 or over. 

Prior to this budget the income tax had two "reduced rates" and 
a "standard rate" which apply to income after the deduction of the 
"relief and allowances." The new schedule proposed in the budget 
widens the area of application of the first rate and adds a new reduced 
rate. In terms of both pounds and dollars the old and new income 
tax rate schedules appear as follows: 



14 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 



Taxable income after "reliefs and allowances" 



Old 
schedule 




In pounds 



£0 to £50___ 
£50 to £100_ 
£100 to £250 
£250 to £400 
Over £400-.- 



cen 
15. 


t 



27. 


5 


27. 


5 


47. 


5 


47. 


5 



Percent 
15.0 
15. 
27. 5 
37. 5 
47. 5 



In dollars (£1=$2.80) 



$0 to $140 

$140 to $280-- 
$280 to $700-. 
$700 to $1,120 
Over $1,120--- 



'ircent 


15 




27. 


5 


27. 


5 


47. 


5 


47. 


5 



Percent 
15 
15 

27. 5 
37. 5 
47. 5 



In dollars (£1=$3.50) 



$0 to $175 

$175 to $350-- 
$350 to $875-- 
$875 to $1,400 
Over $1,400--- 



cen 
15 


t 


27. 


5 


27. 


5 


47. 


5 


47. 


5 



Percent 
15 
15 
27. 

37. 



47. 5 



The reason given for making the reductions in the income tax are 
explained by the following statement by the Chancellor of the Ex- 
chequer: 

I have carefully considered various suggestions which have been made from 
time to time for exempting overtime altogether from income tax, but so far no 
fair or practical way of doing this has been found. The proposal I have put for- 
ward, is, I think, the best way of insuring that overtime is not unduly penalized 
for taxation purposes. I hope that this alone will provide a very real and positive 
incentive to greater production.^ 

The changes in the income-tax law apply to the full taxable year 
1952-53. New withholding tables are to go into effect on June 8. 

The detailed revenue estimates of these changes in the income-tax 
law are as follows: 

Estimated revenue decrease resulting from proposed changes in the individual income- 
tax laws 





1952-53 


Full year of oper- 
ation 


Increase in earned income relief ^'-- 

Extension of earned income relief to all 
incomes of £250 or less 

Increase in single allowance, married allow- 
ance, and child allowance 


£42, 000, 000 

250, 000 

67, 000, 000 
71,000,000 


£53, 000, 000 

1,000,000 

84, 000, 000 


Revision of "reduced rates" ._ 


91, 000. 000 






Total decrease 


180, 250, 000 


229, 000, 000 







« Parliamentary Debates, op. cit., pp. 1305-1306. 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 



15 



The full year's effect of the £229 million represents a decrease of 
about 13K percent of the probable receipts under the "income tax" in 
the fiscal year 1952. 

The surtax rates begin at £2,000 ($5,600, or $7,000) and the reliefs 
and allowances are not allowable. Although no changes were made 
in the surtax rates by the budget, they are shown in table 7 to present 
a clearer picture of individual income taxation in the United Kingdom. 

Table 8 shows for a single person and a married couple with two 
children the amounts of tax due on income, after all allowances except 
personal exemptions and dependency exemptions, and the earned 
income allowance, at various income levels under existing law and 
under the law which will be in effect after the proposed tax changes. 
These data ai-e shown using the foreign exchange I'ate of $2.80 per 
pound, and using the domestic purchasing power conversion rate of 
$3.50 per pound. The table indicates that in the case of a single 
person the maximum dollar amount of tax decrease is reached at an 
income of around $8,000, and amounts to approximately^ $175 or 
about $139, depending upon the conversion rate used. Much the 
same situation exists in the case of the married couple with two de- 
pendents, although here the maximum tax benefit at an income level 
of $8,000 is $241 or $193. On a percentage basis the table indicates 
that both for single persons and married couples the major portion of 
the tax reduction is concentrated in the lowest income brackets. 



Table 7. — Surtax imposed on income of individuals by the United Kingdom 
[Not changed b}' the 1953 budget] 





Surtax rate 




Surtax rate 


Income ^ 


applicable 


Income ' 


applicable 




to income 




to income 




in bracket 




in bracket 


(£1 = $2.80) 




(£1 = $3.50) 






Percent 




Percent 


$0 to $5,600 


0. 


$0 to $7,000 


0. 


$5,600 to $7,000 


10.0 


$7,000 to $8,750 


10.0 


$7,000 to $8,400 


12. 5 


$8,750 to $10,500 


12. 5 


$8,400 to $11,200 


17. 5 


$10,500 to $14,000 


17. 5 


$11,200 to $14,000 


22. 5 


$14,000 to $17,500 


22. 5 


$14,000 to $16,800 


27. 5 


$17,500 to $21,000 


27. 5 


$16,800 to $22,400 


32. 5 


$21,000 to $28,000 


32. 5 


$22,400 to $28,000 


37.5 


$28,000 to $35,000 


37. 5 


$28,000 to $33,600 


42. 5 


$35,000 to $42,000 


42. 5 


$33,600 to $42,000 


47.5 


$42,000 to $52,500 


® 47. 5 


Over $42,000 


50.0 


Over $52,500-- - 


50. 









No "reliefs or allowances" may be taken in computing this tax. 



16 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 



Table 8. — Comparison of the individual tax burdens in the United Kingdom under 
existing law and under the proposed tax reduction 



SINGLE PERSON NO DEPENDENTS 



Net Income ' (after 
deductions but be- 
fore exemptions) 



$400. 



$1,000 

$2,000 

$3,000 

$4,000 

$5,000 

$8,000 

$10,000—- 
$15,000-.-. 
$20,000- — 
$25,000-— 
$50,000- — 
$100,000— 
$500,000 — 
$1,000,000. 



3.50=£1 



Amount of tax 



Existing 
law 



$14 

48 

92 

380 

760 

1,140 

1,520 

2,855 

4,037 

7,312 

10, 937 

14, 887 

37, 137 

85, 824 

475, 824 

963, 324 



Proposal 



30 

55 

295 

638 

1,007 

1,377 

2,681 

3, 862 

7,137 

10, 762 

14, 712 

36, 962 

85, 650 

475, 650 

963, 150 



Tax reduction 



Amount Percent 



18 
37 
85 
122 
133 
143 
174- 
175 
175 
175 
175 
175 
174 
174 
174 



50.0 

37.5 

40.2 

22.4 

16.1 

11.7 

9.4 

6.1 

4.3 

2.4 

1.6 

1.2 

.5 

.2 

(=) 

(2) 



3=£1 



Amount of tax 



Existing 
law 



30 

74 

118 

456 

836 

1,216 

1,596 

3,229 

4,509 

7,999 

11,909 

16, 039 

39, 409 

88, 159 

478, 159 

966, 659 



Tax reduction 



Proposal Amount 

I 



$20 

44 

87 

362 

732 

1,101 

1,471 

3,090 

4,370 

7,860 

11,770 

15, 900 

39, 270 

88, 020 

478, 020 

965, 520 



$2 
10 
30 
31 
94 
104 
115 
125 
139 
139 
139 
139 
139 
139 
139 
139 
139 



Percent 



100.0 

33.3 

40.5 

26.3 

20.6 

12.4 

9.5 

7.8 

4.3 

3.1 

1.7 

1.2 



MARRIED COUPLE 2 DEPENDENTS 



$1,000 

$2,000 

$3,000 

$4,000 

$5,000 

$8,000 

$10,000-... 
$15,000. ... 
$20,000.-- 
$25,000.... 
$50,000-... 
$100,000... 
$500,000-.- 
$1,000,000. 

















$101 


$34 


$67 


66.3 


$168 


$100 


$68 


395 


245 


1.50 


38.0 


544 


386 


158 


775 


575 


230 


25.8 


921 


755 


169 


1,155 


944 


211 


18.3 


1,301 


1,125 


179 


2,490 


2, 249 


241 


9.7 


2,937 


2,744 


193 


3,671 


3, 430 


241 


6.6 


4,217 


4,024 


193 


6,946 


6,705 


241 


3.5 


7,707 


7,514 


193 


10, 571 


10,330 


241 


2.3 


11,617 


11,424 


193 


14. 521 


14, 230 


241 


1.7 


15, 747 


15, 554 


193 


36. 771 


36, 530 


241 


.7 


39, 117 


38, 924 


193 


85, 458 


85, 218 


240 


.3 


87, 867 


87, 674 


193 


475, 458 


475, 218 


240 


.1 


477, 867 


477, 674 


193 


962, 958 


962, 718 


240 


(2) 


965, 367 


965, 174 


193 



40.5 

29.0 

18.3 

13.7 

6.6 

4.6 

2.5 

1.7 

1.2 

.5 

.2 



1 Assumes all income earned. 

2 Less than 0.05 percent. 

Tables 9 and 10 compare the effective and marginal rates payable by 
individuals on income to the United States Federal Government with 
those payable by individuals to the United Kingxlom Government, for 
a single person with no dependents, and for a married couple with 
two dependents. .A.s previously shown. United Kingdom taxes are 
computed at two conversion rates: $3.50 per pound and $2.80 per 
pound. These tables indicate that as a result of smaller United 
Kingdom exemptions the British tax starts at a lower income level 
than in the United States. However, in the $800 and $1,000 income' 
brackets the British tax for single persons is somewhat lighter than the 
tax imposed by the Federal Government in the United States. If 
the comparison is made only on the basis of the $3.50 conversion rate, 
this is also true of the $2,000 bracket. This is attributable to the 
fact that the starting British rate is 15 percent as contrasted to 22.2 
percent in the United States. However, the mai'ginal and effective 
rates are lower in the United Kingdom than in the United States in 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 



17 



these brackets only in the case of single persons. Due to the more 
generous exemptions in the United States for married couples with chil- 
dren, the second United Kingdom rate bracket (and even the third 
rate if £l is held equal to $2.80) applies in the case of married couples 
with children before the exemption level is exceeded in the United 
States, and the second British tax rate, 27)^ percent, is substantially 
above the beginning United States rate of 22.2 percent. 

Table 9. — Comparison of individual effective rates of tax under the proposed rates 
in the United Kingdom and under the present Federal rates in {he United States 

SINGLE PEKSON NO DEPENDENTS 



Net income (after deductions but before 
exemptions) 



United Kingdom 



$3.50 = £1 $2.80 = £1 



United 

States 



$500. 

$■800- 



$1,000 

$2,000 

$3,000 

$4,000. ___ 

$5,000 

$8,000 

$10,000... 
$15,000-. - 
$20,000... 
$25,000... 
$50,000... 
$100,000.. 
$500,000.. 
$1,000,000. 



Percent 



1. 2 
3. 8 
5. 5 
14. 8 
21. 3 
25. 2 
27. 5 
33. 5 
38. 6 
47. 6 
53. 8 
58. 8 
73. 9 
85. 7 

95. 1 

96. 3 



Percent 
1. 6 
3. 3 
5. 5 

8. 7 
18. 1 
24.4 
27. 5 
29. 4 
38. 6 



43. 7 
52. 4 
58. 9 
63. 6 
78. 5 
88.0 

95. 6 

96. 6 



Percent 



5. 6 

8. 9 
15. 5 

18. 1 

19. 7 
21. 
24. 9 
27. 3 
33. 1 
38. 8 
43. 8 
56. 9 
69. 7 
87. 2 
88.0 



MARRIED COUPLE 2 DEPENDENTS 



$1,500 

$2,000 ... 

$3,000 

$4,000 

$5,000 

$8,000 

$10,000 .. 
$15,000... 
$20,000... 
$25,000... 
$50,000... 
$100,000.. 
$500,000.. 
$1,000,000. 




1.0 

5. 
12. 9 
18. 9 
22. 5 
34. 3 
40. 2 
50. 1 
57. 1 
62. 2 
77. 8 
87. 7 

95. 5 

96. 5 



4. 4 

8. 9 

11. 5 

16. 

17. 7 
21. 6 
25. 
28. 
42. 2 
56. 
82. 2 
87. 1 



' Assumes all income earned. 

' Taking into account maximum effective rate limitation of 88 percent. 



18 



SUMMARY UF THE BUDGET OF THE UNITED KINGDOM 



Table 10. — Comparison of the marginal rates of tax on incomes of individuals 
under the Lnited Kingdom law after the proposed tax changes and under the Federal, 
tax law in the United States for selected net income levels 

[The margiDal rates showii are for the top dollar of income] 

SINGLE PERSON NO DEPENDENTS 



Net income (after deductions but before 
exemptions) 



$600 

$800 

$1,000 

$1,500 

$2,000 

$3,000 

$4,000 

$5,000 

$8,000 

$10,000--. 
$15,000_-. 
$20,000--. 
$25,000--. 
$40,000--. 
$50,000--. 
$100,000-. 
$500,000- _ 
$1,000,000 



United Kingdom ^ 



$3.50 = £1 $2.80 = £1 



Percent 
15. 
15. 
27. 5 
27. 
37. 
47. 
47. 
47. 
57. 
60. 
70. 
75. 
80. 
90. 
95. 
97. 5 
97. 5 
97. 5 



Percent 
15. 
27. 5 
27. 
37. 
47. 
47. 
47. 
47. 
60. 
65. 
75.0 
80. 
85. 
95. 
97. 5 
97. 5 
97. 5 
97. 5 



United 
States 



Percent 



MARRIED COUPLE 2 DEPENDENTS 



$1,500 

$2,000 

$2,500 

$3,000 

$4,000 

$5,000 

$8,000 

$10,000--- 
$15,000--- 
$20,000--- 
$25,000--- 
$40,000--- 
$50,000--- 
$100,000-- 
$500,000-- 
$1,000,000- 




15. 
27. 5 
37. 5 
47. 5 
47. 5 
47. 5 
60. 
65.0 
75. 
80.0 
85.0 
95. 
97. 5 
97. 5 
97. 5 
97. 5 



1 -\psumes all income earned. 

2 Tailing into account maximum effective rate limitation of 88 percent. 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 19 

Above the lower income bi^ackets the United Kingxlom tax rates rise 
much more rapidly than is true in United States. For example, a 
50 percent effective rate in the United Kingdom for a single person 
is reached between the income levels of $14,000 and $17,000, depending 
on the rate of conversion. For a married couple with two children a 
50 percent effective rate is reached at about $15,000 or $19,000 
depending on the conversion rate. In the United States a 50 percent 
effective rate does not apply in the case of a single person until an 
income level of approximately $34,000 is reached, and in the case of 
a married couple with two dependents, until an income level of approx- 
imately $73,000 is reached. This wide spread in the United States 
taxes between taxes of single and married persons is attributable to 
the income-splitting provision, which the United Kingdom does 
not have, although the budget would under certain circumstances 
permit married couples to be taxed as though they were single persons. 

The maximum marginal rate in the United Kingdom is 97K percent 
as contrasted to 92 percent in the United States. In the case of a 
single person, however, this maximum rate is reached at an income 
level of between $40,000 and $50,000 in the United Kingdom, while in 
the United vStates it is not reached until an income level of about 
$200,000, in the case of a single individual and about $400,000 in 
the case of a married couple. 

In view of the fact that there are no local income taxes in the United 
Kingdom, the previous tables do not present an accurate comparison 
of the tax burdens in the United Kingdom and in the United States 
with respect to persons living in States also imposing an income tax. 
For that reason table 1 1 is inserted comparing the income tax burdens 
on individuals under the proposals in the United Kingdom and under 
the present combined Federal and State income-tax laws in selected 
States. 



20 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 



Table II. — Individual income-tax burdens under the -proposed tax changes in the 
United Kingdom and under the combined Federal and State income-tax laws 
in selected States 



SINGLE PERSON NO DEPENDENTS 



Net income i 
(after deduc- 


United Kingdom 2 


United 

States 

and New 

York 


United 
States 
and Cali- 
fornia 


United 
States 

and 
Virginia 


United 
States 


tions but before 
exemptions) 


$3.50 = £1 


$2.80 = £1 


and North 
Carolina 


$600 


$7 

30 

55 

295 

638 

1,007 

1,377 

2,681 

3,862 

7, 137 

10, 762 

14, 712 

36, 962 

85, 650 

475, 650 

963, 150 


$20 

44 

87 

362 

732 

1, 101 

1,471 

3,090 

4,370 

7,860 

11, 770 

15, 900 

39, 270 

88, 020 

478, 020 

965, 520 










$800 

$1,000 


$44 

89 

329 

587 

860 

1, 160 

2,226 

2,940 

5,290 

8, 161 

11,378 

29, 182 

70, 409 

438, 661 

3 887, 525 


$44 

89 

311 

552 

808 

1,082 

2,062 

2, 796 

5,081 

7,934 

11, 161 

28, 999 

70, 304 

438, 494 

3 887, 096 


$44 

89 

331 

582 

848 

1, 142 

2,212 

2,926 

5, 244 

8,098 

11, 304 

29, 046 

70, 266 

438, 150 

3 885, 978 


$44 
89 


$2,000 


341 


$3,000 


602 


$4,000 

$5,000 -_ 


888 
1, 192 


$8,000 

$10,000 

$15,000 

$20,000 

$25,000 

$50,000 

$100,000- 

$500,000 

$1,000,000 - 


2,292 

2,988 

5,34a 

8,217 

11,436 

29, 269 

70, 493 

438, 941 

3 888, 365 



MARRIED COUPLE^ — 2 DEPENDENTS 



$2,000 

$3,000 

$4,000 

$5,000 

$8,000 

$10,000-_- 
$15,000._- 
$20,000- _ - 
$25,000--- 
$50,000-.- 
$100,000-- 
$500,000-- 
$1,000,000 





$34 




245 




575 




944 


2, 


249 


3, 


430 


6, 


705 


10, 


330 


14, 


280 


36, 


530 


85, 


218 


475, 


218 


962. 


718 



$100 




386 




755 


1. 


125 


2, 


744 


4, 


024 


7, 


514 


11, 


424 


15, 


554 


38, 


924 


87, 


674 


477, 


674 


965, 


174 



$133 

368 

614 

1,415 

1.940 

3,574 

5,513 

7,666 

22, 012 

57, 499 

413, 709 

876, 229 



$133 
355 

584 

1, 319 

1,822 

3,349 

5,203 

7,314 

21, 765 

57, 280 

413, 543 

875, 943 



$145 

387 

629 

1,432 

1,962 

3,566 

5,465 

7,584 

21, 853 

57, 220 

413, 204 

875, 204 



$145 

397 

653 

1,492 

2,018 

3,666 

5,619 

7, 786 

22, 141 

57, 682 

413, 992 

876, 792 



' Under $10,000 assumed to be the same for both Federal and State tax purposes. Tor classes $10,000 
and over the net income for State tax purposes is that shown with the Federal tax being computed on the 
net income less State tax paid. 

' Assumes all income earned. 

3 Taking into account the Federal maximum effective rate limitation of 88 percent. 



B. CORPORATE TAXES 

The United Kingdom collects a profits tax on corporations on their 
net income in excess of £2,000 ($5,600 or $7,00(j). This tax prior to 
the budget proposals was composed of the two following rates: 10 per- 
cent on all profits and an additional rate of 40 percent on distributed 
profits. In the case of the 40 percent tax on distributed profits, how- 
ever, both the 10 percent tax and the 40 percent tax itself are allowed 
as deductions in its computation. For that reason the 10 percent and 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 21 

40 percent profits tax rates on distributed profits are really the equiva- 
lent of a 35.71 percent tax instead of a 50 percent tax.*^ 

After the pa3anent of the profits tax, corporations then paid the 
same "income tax" at the standard rate of 47^ percent which is 
applicable to incomes of individuals. This tax, however, applied 
only to the profits remaining after the deduction of the profits tax. 
Moreover, with respect to distributed income this income tax in effect 
is a "\\^thholding tax" for the stoclvholder on his dividend income since 
he does not hav^e to pay the "income tax" on dividends again. He in- 
cludes the "gross" dividend (i. e., the dividend received plus the 
47)2 percent tax paid on the dividend by the corporation) in his 
income and takes a credit against the tax so computed for the 47K 
percent tax paid by the corporation. Then, if he has less than the 
amount of the dividend income taxable at the standard rate he 
receives a refund of part of the tax paid by the corporation; if he is 
subject to surtax he pays additional tax on the dividend income. 

The combined effect of the profits tax and the "income tax" was a 
total tax of 52.75 percent with respect to undistributed earnings and 
a tax of 18.75 percent plus a 47}^ percent witholding tax with respect 
to distributed earnings.^ 

The budget proposals provide for the imposition of an excess-profits 
tax and also make some changes in the profits tax itself. The com- 
bined profits tax and "income tax" on undistributed profits is to be a 
flat 50 percent in lieu of the 52.75 percent which previously prevailed 
and the combined tax on distributed profits is to be 17.5 percent plus 
a 47.5 percent withholding tax instead of 18.75 percent plus the 
47.5 percent witholding tax. Thus, the combined profits and "income 
tax" on undistributed profits is reduced b}^ 2% percentage points while 
the tax on distributed profits is reduced by 1% percentage points. The 
method of computing the profits tax and "income tax" also is simplified 
considerably by the budget proposals. No longer is the profits tax 
computed first and then deducted before computing the "income tax." 
Under the budget proposal both taxes will be taken off at the same 
time. The tax on undistributed corporate profits is to be expressed 
as a 2/^-percent tax and the tax on distributed profits as a 17/2-percent 
tax, both to be taken concurrently with the 47}2-percent "income tax." 
The reason given by the Chancellor of the Exchequer for the reduction 
in the profits tax is as follows: 

It would, however, be asking too much that industrj' should carry the excess- 
profits levy m addition to the profits tax at the present very high rates. 1 propose, 
therefore, that some compensating reduction should be made in the profits tax 
as a corollary of the introduction of the levy.* 

8 A release of the British Information Service, dated December 1951, ID 729 (Revised), indicates that the 
10 percent tax applying to total profits is computed first and then deducted in arriving at the base for the 
remaining 40 percent tax. It also indicates, however, that the 40 percent tax itself is deducted from the tax 
base in computation of the 40 percent tax. Thus, in terms of a tax on net income this additional 40 percent 
tax can be expressed by the following equation: Tax on distributed profits = 0.4 (90 percent of profits minus 
the" tax on distributed profits). The solution to this equation is 25.71 percent which when added to the 10 
percent tax on total profits gives the 35.71 percent referred to iu the text above. 

' In the case of undistributed profits the tax rates involved are the 10 percent profits tax and the 47H 
percent income tax. The 10 percent profits tax is computed first and then deducted from the tax base in 
computing the 47}.2 percent tax. Thus, the base of the 47^^ percent tax is 90 percent of the profits of the 
corporation. Ninety percent of 471.2 percent is 42.75 percent. Adding the 10 percent profits tax to this gives 
a total tax of 52.75 percent in the case of undistributed profits. In the case of distributed profits it was 
previously explained that the profits tax was in effect imposed at a rate of 35.71 percent. This leaves as a 
base for the income tax 64.29 percent of the profits. Thus the income tax is 471.2 percent of 64.29 percent, or 
30.54 percent of total profits. When the profits tax of 35.7! percent is added to this, a total rate of 66.25 
percent is obtained for distributed profits of which 47.5 percentage points is treated as a withholding tax.- 
This leaves a tax of 18.75 percent which is strictly the corporate liability. 

' Parliamentary Debates, op. cit. p. 1293. 



22 SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 

Mr. Butler in his budget statement indicates that he beheves an 
excess profits tax should be imposed because: 

At a time like this sacrifices should be equally borne. We are not prepared to 
see excessive profits being made as a result of the injection of rearmament into 
the economy. 8 

Although not identical, the excess profits tax levy (called lev}^ to 
distinguish it from the World War II excess profits tax) is quite siniilar 
to the excess profits tax present^ imposed in United States. The 
United Kingdom excess profits levy is effective as of January 1, 1952, 
and applies to "companies and other bodies" but does not extend to 
proprietorships or partnerships as it did in World War II. The levy 
is charged on amounts by which current profits exceed ''standard 
profits." These "standard profits"are equivalent to the "excess profits 
credit" under the United States tax. The ordinary base for determin- 
ing standard profits under the United Kingdom, tax is the average of a 
corporation's profits for the years 1947, 1948, and 1949. Under the 
United States excess profits tax the m^ost often used base is 83 percent 
of the average profits in the best 3 out of 4 vears of the period 1946 
through 1949. 

In both the United Kingdom and in the United States the rate of 
the excess profits tax is 30 percent and in both cases the excess profits 
tax is imposed on top of the regular taxes payable by corporations. 
In the United Kingdom this means that the maximum rate which 
will be imposed on any undistributed profits subject to the excess 
profits levy is 80 percent. This rate is composed of the 30-percent 
excess profits tax, the 2}^-percent profits tax, and the 47K-percent 
^'incom.e tax." In the case of profits which are distributed, the m.ax- 
imum combined tax imposed in the United Kingdom, is to be 95 per- 
cent or 47.^ percent, depending upon whether the income tax paid by 
the corporation for the stockholder is included or not. This is com- 
posed of the 30-percent excess profits tax, the 17)2-percent profits tax 
payable on distributed profits, and the 47K-percent incom.e tax. In 
the United States the corporate rate of 52 percent combined with the 
30-percent excess profits tax result in a top rate of 82 percent on income 
subject to the excess profits tax. 

A ceiling rate of 18 percent is imposed in the United Kingdom. 
This appears to be identical to the ceiling rate imposed in connection 
with the United States excess-profits tax. 

This [United Kingdom] ceiling will be 18 percent of the total profits; in other 
words, the excess-profits levy payable will be 30 percent of the excess profits, of 
18 percent of the total profits, whichever is the less.i" 

The maximum tax on excess profits under the United States law is 
also either 30 percent of the excess profits or 18 percent of the income 
before deducting the excess-profits credit. The ceiling rate under the 
United Kingdom taxes assures a corporation not distributing any of its 
profits that it will pay in taxes no more than 68 percent of its income, 
or, in the case of a corporation distributing its profits, that it will 
pay in taxes no more than 83 percent of its income (including the 47K- 
percent tax paid for the stockholders). In the United States the 
18-percent ceiling rate assures corporations with substantial incomes 
that they will pay no more than 70 percent of their income in taxes. 
Tor corporations with smaller incomes the surtax exemption and 

Ibid., p. 1291. 

«» Ibid., pp. 1292-1293. 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 23 

minimum excess-profits credit taken together with the ceiUng rate 
have the effect of achieving a shcling scale of ceihng rates var^dng 
from 30 percent to 70 percent. 

Like the United States law, the United Kingdom law also provides 
:for a minimum excess profits credit, or as it is called there, a "mini- 
mum standard." The minimum standard m the United Kingdom is 
£2,000 which translates into $5,600 or $7,000, depending upon the 
conversion rate used. The United States mmimum excess profits 
credit is $25,000. This minim^um. credit or standard permits a tax- 
payer, after com.puting his excess profits credit or standard profits in 
the normal manner, to substitute for that credit or standard the 
$25,000 or the £2,000. In the Financial Statement, issued in connec- 
tion with the United Kingdom budget, it is stated that: 

* * * special provisions will apply when the eompany belongs to a group of 
companies or when it is a new or recently incorporated company mider com- 
mon control Avith another company. ^i 

It appears likely that this provision will be similai- to, although 
somewhat more restrictive than, section 121 of the Revenue Act of 
1951 in the United States. This section provides that if a corporation 
transfers after December 31, 1950, all or part of its property other 
than money to a new corporation, the new corporation will not be 
allowed to have a minimum excess profits credit (or $25,000 surtax 
exemption) if the old corporation or its stockholders own 80 percent 
or more of the voting stock of the new corporation, unless it can be 
shown that the corporate split-up was not made with a major purpose 
of obtaining an additional minimum excess profits credit (or surtax- 
exemption) . 

Under the United Kingdom excess profits levy a corporation in 
computing its standard profits may substitute for the actual profits in 
any one or two of the 3 years 1947 through 1949 a return of 8 percent 
of its paid-up share capital or it may substitute 10 percent of such 
capital for its profits in all three of these years. The United Kingdom 
lev}^ also permits standard profits to be raised by 10 percent of the 
profits retained in the business and by 10 percent of the new share 
capital raised but no increases are allowed for additions to debt. 
These provisions bear some resemblance to two provisions of the 
United States excess profits tax law. One of these United States 
provisions is the invested capital credit which is an alternative to 
the average earnings credit in the computation of the excess profits 
credit. Corporations taking advantage of this alternative are allowed 
rates of return on their invested capital (including retained earnings) 
varying from 8 percent to 12 percent, depending upon the size of their 
invested capital. The capital to which the United States and the 
United Kingdom permit these various percentages to be applied difl^er 
in one important respect. Under the United Kingdom excess profits 
levy, borrowed money is not considered as capital, although the 
interest payable on such borrowing is allowed as a deduction in com- 
puting excess profits. Under the United States law three-quarters of 
the borrowed funds are treated as invested capital and one-quarter 
of the interest payments are deductible in computing income subject 
to excess profits tax. 

" Financial Statement (1952-53), H. M. Stationery Office, March 11, 1952, p. 13. 



24 SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 

The United Kingdom rule permitting the substitution of 8 or 10 
percent of the capital for profits in the years 1947, 1948, or 1949 also 
bears some resemblance to the "general relief" provisions pertaining 
to abnormalities during the base period provided under the United 
States excess profits tax law. Under the United States law a "sub- 
stitute average base period net income" is available in computing the 
average earnings credit if the corporation's average base period net 
income in one or more years meets certain specified tests of "abnor- 
mality." In those cases where the substitute average base period net 
income is available under United States law, the substitute is com- 
puted by multiplying the total assets of the corporation by the base- 
period rate of return for the corporation's own particular industry in 
the year or years of the abnormality. 

Under the United Kingdom levy new businesses set up on or after 
July 1, 1948, are given a rate of return equal to 10 percent of their 
paid-up share capital, retained earnings, and new share capital. New 
companies, which commenced business during the period 1947-49 but 
before July 1, 1948, are given an option of taking as their standard 
profits their average profits in the base period or, as in the case of the 
new businesses commencing after July 1, 1948, they may take 10 per- 
cent as a rate of return on their paid-up share capital, retained earn- 
ings and new share capital. Under United States law, new corpora- 
tions are allowed to compute their excess profits credit by taking 
83 percent of their average base-period earnings over their tlu-ee best 
years in the period 1946 to 1949, treating loss years and years in which 
they were not in business as zero; or they may use the ordinary in- 
vested capital credit; or they may use the so-called growth alternative. 
In addition, in their first 5 years of operation they are entitled to 
special ceiling rates ranging from 5 percent to 14 percent instead of 
the 18 percent applicable to other corporations. 

A system of so-called initial allowances was introduced in the 
United Kingdom Income Tax Act of 1945. Under this prov^ision 20 
percent of the cost of new plant and machinery and 10 percent of the 
cost of industrial buildings, mines, and oil wells could be written off 
in the first year. In 1949 the initial allowance on plant and machinery 
was increased to 40 percent. The budget of last year suspended 
these initial allowances as of April 6, 1952. This reduced the deprecia- 
tion on expenditures after that date to the ordinary allowances. Under 
the excess profits tax levy (but not under the profits tax or "income 
tax") corporations are to be given the option of taking the initial 
allowances of 20 percent with respect to plant and machinery and 10 
percent with respect to industrial buildings in computing both the 
standard profits of the period 1947 to 1949 and the income currently 
subject to the excess profits levy, or they may take no "initial" 
allowance in either period. 

It is estimated that the corporate tax changes taken together will 
yield £100 million in a full year of operation. However, in the fiscal 
year 1952-53 collections from the corporate tax changes are expected 
to increase revenues by only £l million. 

C. STRUCTURAL CHANGES 

The principal structural change made by the budget in the United 
Kingdom tax system is the elimination of the time limit for the carrv- 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 25 

forward of business losses. This is along the lines of, but more liberal 
than, the treatment provided for net opera tmg losses by section 215 of 
the Revenue Act of 1950 in the United States. Prior to this act under 
United States law a business loss could be carried back against income 
in the two precedmg years and carried forward against the income of 
the two subsequent years. The Revenue Act of 1950 substituted a 
•one-year carryback and a five-3^ear carryforward. 
• The other structural changes made in the income and profits taxes 
are as follows: 

1. "Certain additional allowances" are to be given to mining 
concerns operating abroad. 

2. Brewers are no longer to have a special deduction for tax purposes 
\vhen they let "tied" houses for less than their full value. The expres- 
sion " 'tied' houses" refers to cases where brewers have leased buildings 
as "pubs" with the agreement that only their beer would be sold. 

3. The limits are increased on the amounts which Lloyd's under- 
writers may deduct for siu"tax pm-poses with respect to sums paid under 
approved schemes to trust funds to meet future losses. This is an 
extension of relief from siu-tax granted to Lloyd's in 1949. 

4. A revision is made in the application of the estates duty in the 
case of estates of members of the armed forces. In the futm-e all ranks 
are to be treated alike and given total exemption from estate duty in 
time of war or in warlike operations and no relief is to be given in 
time of peace. 

D. CUSTOMS, EXCISES, AND DUTIES 

The most important changes in customs, excises, and duties relate 
to the increase in the rate applied to hydrocarbon oils, including 
gasoline, and the revision of the entertainment and motor-vehicle 
duties. 

The budget raises the customs duty on gasoline and other oils used as 
road fuel by 7Kd. per imperial gallon. This raises the duty from Is. 
lO^d. to 2s. 6d. per gallon. As a result the retail price of gasoline 
which previously sold for 3s. Ijid. per gallon was raised to 4s. 3d. per 
gallon. In terms of dollars and United States gallons the proposed 
tax is 29Ko cents per gallon using the $2.80 foreign exchange rate or 
SQjio cents per gallon, using the $3.50 conversion rate, and the new re- 
tail price of gasoline is 49^2 cents per gallon at the $2.80 exchange rate, 
or 62 cents per gallon at the $3.50 exchange rate. Thus, the pro- 
posed tax will equal about 59 percent of the selling price of gasoline 
in the United Kingdom. The excise tax on home-produced substitutes 
for motor fuel was raised by the same amount as the customs duty 
but the preference of 9d. (8j{o cents or 10%o cents in United States 
gallons), which was previously established with respect to such sub- 
stitutes, was retained. 

The rate currently imposed on gasoline by the Federal Government 
in the LTnited States is 2 cents per gallon and the State excises on 
gasoline range from 2 cents to 9 cents per gallon. 

With respect to this tax on gasoline, the Chancellor of the Exchequer 
in his budget speech states: 

Since the main objective of the budget is to relieve our balance-of-payments 
difficulties, I must pay particular attention to a scarce product which costs us 
foreign exchange.'^ 

12 Parliamentary Debates, op. cit., p. 1296. 



26 SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 

He also indicates that he is using this gasohne tax as a substitute 
for gasohne rationing. 

Prior to the recent budget the United Kingdom imposed two enter- 
tainment duties. One of these was cahed the "fuh scale" and the 
other the "reduced scale." Among the forms of entertainment to 
which the "full scale" applied was "racing or trial of speed of animals, 
vehicles, motor vessels or aircraft." ^^ The second duty, or "reduced 
scale," applied to other sports and games. The tax on racing under 
the full scale reached a rate of 100 percent on admissions of around a 
dollar, and on admission charges of above about 15 or 20 cents the'tax 
rate was 70 percent or above. The reduced scale, applying to other 
sports and games, began at a level of Is. (14 cents or 17}^ cents). From 
Is. to Is. 5d. (about 20 cents or 25 cents) the tax under the reduced 
scale was approximatelj^ 5.9 percent. For amounts charged in excess 
of Is. 5d. the tax under the reduced scale was 20 percent. The budget 
proposals eliminate the application of both of these tax scales to sports 
and games and instead tax all sports and games under a single new 
scale which in the words of the Chancellor of the Exchequer is "rather 
less than halfway betw^een the present scales." ^* Under this new 
scale, applicable both to racing and other sports and games, no tax 
is payable on admissions of Is. or less (14 cents or 17^2 cents); a tax 
of l^d. is payable on admissions between Is. and Is. l^d. (about 
16 cents or 20 cents); and on amounts over Is. U^d. a tax of %d. is 
imposed for every Id. charged. This is equivalent to a rate of about 
1 1 percent at the top of the first bracket and is a tax of 50 percent on 
amounts paid in excess of this bracket. 

The budget also removes the exemption from the entertainment 
duty for nonprofit educational organizations with respect to "music 
hall and other variety entertainments." 

The tax on admissions imposed by the Federal Government of the 
United States is 1 cent for every 5 cents or major fraction thereof, or 
roughly the ecjuivalent of a 20-percent tax. There are, however, in 
some cases local United States taxes imposed on admissions as welL 

The reductions under the United Kingdom racing tax are made 
effective as of March 30, 1952, and the increases in the tax on other 
games and sports are made effective as of August 31, 1952. It is 
estimated that these proposals in a full vear of operation will cost 
about £250,000. 

In the United Kingdom the motor-vehicle-license duty in the case of 
cars first registered prior to 1947 has been based upon the horsepower 
rating of the engines. Cars first registered since that time were charged 
a flat annual license dut}^ of £10. The budget abolishes the old horse- 
power rating for cars registered prior to 1947 and imposes a flat fee 
of £12 10s. a year on all cars irrespective of when they were first regis- 
tered. In terms of dollars, the old flat fee of £10 applicable to cars 
first registered in 1947 or since that time is the equivalent of $28 or $35, 
depending upon the conversion rate used. The new fee of £12 10s., 
applicable to all cars irrespective of when they were registered, is the 
equivalent of $35 or $43.75, depending upon the conversion rate used. 
For cars first registered prior to 1947 with more than 7 horsepower, 
the new fee represents a lower rate of tax than is now imposed. For 
all cars first registered in 1947 or since that time, as well as for cars first 

" Financial Statement, op. eit., p. 15. 

'■I Parliamentary Debates, op. cit., p. 1295. 



SUMMARY OF THE BUDGET OF THE UNITED KmODOM 27 

registered prior to 1947 with 7 horsepower or less, the new fee repre- 
sents an increase in tax. These changes are effective as of January 
1, 1953, and it is anticipated that they will cost £850,000 in 1953 and 
£1,300,000 in a full year of operation. 

A loophole is closed in the pool betting duty. The duty previously 
applied only to bets where "the winnings are determined by the 
amount of the 'pool' of stake money or by the division of some other 
amount among the winners, or where the winners or their winnings 
are to any extent at the discretion of the promoter or some other 
person." ^^ The budget proposal extends the scope of the duty to 
include any bet made otherwise than at "fixed odds." A provision 
is also added to cover cases where winnings are made partially in 
payments in kind. This change applies to bets made A\itli respect 
to events taking place*on or after March 22, 1952. 

The budget also reduces the stamp duties on conveyances of 
property, other than stocks and bonds, where the sales prices are not 
in excess of £3,450 ($9,660 or $12,075, depending upon the rate of 
conversion). Previously the rate was 2 percent on the conveyances 
of such property where the amount exceeded £1,500 ($4,200 or $5,250). 
Under the budget proposal conveyances where the sales prices exceed 
£1,500 but do not exceed £3,000 ($8,400 or $10,500) the tax is to be 
1 percent; where the consideration exceeds £3,000 but does not 
exceed £3,450, the tax is to be 1% percent; and in cases where the 
consideration exceeds £3,450 the tax will remain at 2 percent of the 
consideration. 

E. PURCHASE TAX 

The Central Government in the United Kingdom imposes a whole- 
sale sales tax called the purchase tax. This tax applies to a wide 
range of commodities, but certain basic necessities like food, utility 
textiles, and utility furniture are excluded from its application. Also, 
exemptions are provided for items like liquor and tobacco which are 
subject to heavy excise duties. The items subject to the purchase 
tax are classified into three groups which are taxed at rates of 33K 
percent, 66^^ percent, or 100 percent of the wholesale price. 

The current proposals discontinue the existing utility exemptions 
for certain textiles, namely, the less expensive formes of wearing 
apparel (including footwear), cloth, domestic textiles, and soft furnish- 
ings and beddings. Instead the articles in these categories, whether 
utility or not, whose wholesale value does not exceed certain specified 
amounts are to be free of tax, and where the wholesale value of such 
articles exceed the exempt amount, they are to be taxable at existing 
rates on so much of the price as is in excess of the exemption. A 
detailed schedule of exemptions for various classes of textiles is avail- 
able in the Financial Statement. 

The Chancellor of the Exchequer in his budget speech points out 
that this change in the purchase tax was designed to remove an 
obstacle to the development of the export trade in the field of textiles. 
He points out that the exemption of certain utility textiles from the 
purchase tax has had the eft'ect of hindering the development of a 
foreign market for textiles which are of a grade which is just above 
that of the utility items and therefore just subject to tax. 

This arises from tho fact that the main demand at home has been for utility 
grades, which have crjoyed complete tax exemption. An article which is just 

15 Financial Statement, op. cit. p. 22. 



28 SUMMARY OF THiE BUDGET OF THE UNITED KINGDOM; 

too expensive to qualify aS;Uti]ity has had practically no sale at home because of 
the big jump in the retail pric9 caused by the addition of the tax. But many 
such articles * * * \yould command a ready sale abroad, if there were 
also sufficient home demand to make their production an economic proposition. i« 

The budget also remov^es or lowers the tax on certain goods, "includ- 
ing such essential items as rubber boots, oil baize, and a wide range 
of industrial protectis'e clothiag." ^^ These articles were previously 
outside of the utility classification and thus were subject to the 
purchase tax. The budget brings them into the new textile classi- 
fication and as a result they will be either nontaxable or taxed at a. 
reduced rate. 

The budget proposals also provide that garments trimmed with fur 
skin in the future are to be taxed at the 33K-percent rate instead of 
the 100-percent rate. 

These changes in the purchase tax are effective as of March 17, 
1952. The Chancellor of the Exchequer indicates that the alterations 
in the purchase tax are unlikely to raise an}^ additional revenue this 
year. 

F. POST OFFICE CHARGES 

The budget indicates that increasing costs necessitate the raising 
of certain post-office charges in order to avoid a postal deficit. With 
respect to domestic mail, increased charges are imposed on letters 
weighing more than 4 ounces and on registered letters. Increases are 
also provided for mail going outside of the United Kingdom in the case 
of air-mail letters, post cards, commercial matter, and registered letters. 
Postal-order rates and inland parcel-post rates are also to be raised. 

Telephone services which have been nationalized in Great Britain 
also are under the Postmaster General. Under existing law, in addi- 
tion to various charges for having a telephone in his home, a subscriber 
pays a special 15-percent charge which is somewhat comparable to the 
United States excise tax of 15 percent on local telephone calls. Under 
the budget proposal this is raised to "approximately 50 percent." 
The "free call" allowance is also reduced from 100 every 6 months to 
50 for every 6 months and certain increases are provided in the charges 
for telephone connections, removals, and transfers. In the case of 
certain special telephone services and telegraph service, an existing 
charge of 25 percent is made over and above various specific charges. 
This also appears somewhat comparable to the United States tax of 
15 percent on telegraph service (formerly 25 percent) or 25 percent on 
long-distance telephone calls. These charges are increased to 50 per- 
cent, the same charge which is to apply in the case of ordinary tele- 
phone services. 

The postal changes are made effective as of May 1, 1952, and those 
applying to telephone and telegraph service as of July 1, 1952. Apart 
from the parcel-post rate increases, it is estimated that the increases 
made in the charges for postal services and telephone and telegraph 
services will add £9,635,000 to revenues in the fiscal year 1953, and 
£13,795,000 in a full year of operation. 

'6 Parliamentary Debates, op. eit., p 1279. 
1' Ibid., p. 1280. 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 



29 



\V. Historical "Record of Receipts, Expenditures, and Debt 

Tables 12, 13, 14, and 15 contain certain financial data of the United 
Kingdom for recent years. Table 12 shows total budgetary receipts 
and expenditures of the Central Government with the resulting sur- 
plus or deficit; table 13, the Central Government's receipts by major 
revenue sources; table 14, the Central Government's outstanding net 
debt; and table 15, the gross national product. 

Tabi.e 12. — Receipts, expenditures, and the surplus or deficit of the Central 
Government of the United Kingdom, fiscal years J 945-53 





[In millions of pounds] 






Fiscal year ending Mar. 


31 — 


Receipts 


Expendi- 
tures 


Surplus (+) 
or deficit ( — ) 


1945 - - - 


3,238 
3,285 
3,341 
3,845 
4,007 
3,924 
3,978 
4,440 
4, 661 


6,037 
5,649 
3, 836 
3,210 

3, 176 
3,375 
3,257 
4,074 

4, 150 


— 2 799 


1946 _- 


— 2, 364 


1947 


— 495 


1948 - 


+ 635 


1949 


+ 831 


1950 


+ 549 


1951 


+ 721 


19521 ... 


+ 366 


1953 (estimated) ^ 


+ 511 









> As contained in the budget message of Mar. 11, 1952, for the fiscal year ending Mar. 31, 1952. 
2 Including elTects of proposed tax changes and taking into account the decrease in food subsidy pay- 
ments of £160 million and the increase in assistance and pension payments of £80 million. 



Table 13. 



-Receipts from major sources, Central Government of the United Kingdojn, 
for fiscal years 1945-1953 

[In millions of pounds] 





1945 


1946 


1947 


1948 


1949 


1950 


1951 


1952 1 


1953 2 


Income taxes 

Profits taxes 


1.390 
510 
111 
579 

17 
30 
497 


1.430 
466 
120 
570 

25 
43 
541 


1,232 
357 
148 
621 

38 
49 
564 


1,281 
289 
172 
791 

56 
49 
630 


1,465 
279 
177 
823 

56 
53 
734 


1,553 
297 
190 
813 

51 
56 
706 


1,525 
268 
185 
905 

54 
61 

725 


1,818 
307 
180 

1,000 

62 
65 

755 


1,927 

457 


Death duties 

Customs..- . -- .-_-.- 


175 
1,044 


Excise and sales taxes: 

Stamp taxes . __ - . . 


58 


Motor-vehicle duties 


64 


Excises . ---- 


772 






Total excise and sales taxes 


544 


609 


651 


735 


843 
80 

1 


813 

20 

1 


841 
5 

1 


882 

} ' 


894 
2 


Miscellaneous inland revenue duties. _ 


1 


1 


1 


1 


Total tax receipts 


3,135 
103 


3,197 
87 


3,010 
331 


3,269 
576 


3,668 
339 


3,687 
237 


3,730 
248 


4,190 
250 


4,498 
163 






Total receipts . _. _._ ._ 


3,238 


3,284 


3,341 


3,845 


4,007 


3,924 


3,978 


4,440 


4,661 







1 Probable receipts as contained in the Financial Statement of Mar. 11, 1952, for year ending Mar. 31, 1952. 

2 Estimated, including effects of tax changes. 

Note.— Figures are rounded and may not necessai-ily add to totals. 



30 



SUMMARY OF THE BUDGET OF THE UNITED KINGDOM 



Table 14. — Debt of the Central Government in the United Kingdom on Mar. 31 

[Tn millions of pounds] 





1945 


1946 


1947 


1948 


1949 


1950 


1951 


1952 


Net internal debt _ 


21, 237 
1,269 


23, 373 
369 


24, 987 
767 


24, 168 
1,555 


23, 672 
1,595 


23, 612 
2,190 


23.729 
2,192 


23 694 


External debt ._ . 


2, 166 






Total net debt 


22, 606 


23, 742 


25, 734 


25, 723 


25, 267 


25, 802 


25, 922 


25, 860 



Table 15. — Gross national ■product of the United Kingdom at market value for the 
calendar iiears 1944 through 1951 

[In millions of pounds] 



Year 


Amount 


Year 


Amount 


1944 

1945 - 


1 10, 155 

1 10, 088 

2 10, 117 
2 10, 944 


1948 

1949 - 


3 11,924 
3 12, 765 


1946 --- 


1950 - . - 


3 13, 485 


1947 • - - 


1951 


3 14, 190 









> National Income and Expenditure of the United Kingdom, 1947 (Cmd. 7371), H. M. Stationery Office. 
Compiled from tables 10 and 13. 

2 National Income and Expenditure of the United Kingdom, 1946-1948 (Cmd. 7647), H. M. Stationery- 
Office. 

3 Preliminary National Income and Expenditure Estimates, 1948-1951 (Cmd. 8486), H. M. Stationery 
Office.